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Problem 2: Stock Forward (5 points) (a) There is a large stock that pays no dividend and has a current share price of $25. The

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Problem 2: Stock Forward (5 points) (a) There is a large stock that pays no dividend and has a current share price of $25. The quoted one year risk-free rate is equal to 3% (APR) and the one year Forward price for this stock is $26. Interest rates are continuously compounded. (a) What is the no arbitrage Forward price of the stock? No-arbitrage forward price: (1 point) (b) Construct an arbitrage portfolio for this stock. What total profit do you get from an arbitrage trade of one share? Profit: (4 points) Which Asset? Buy or sell

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